U.S. online retail sales will grow 57% by 2018

U.S. e-retail sales are expected to grow from $263 billion in 2013 to $414 billion in 2018, a compound annual growth rate of 9.5%, according to a new online retail sales forecast from Forrester Research Inc.released today. E-retail’s share of total retail sales will continue to inch upward, from 8% in 2013 to 11% in 2018. The dollar growth from the actual 2013 figure of $263 billion to the forecast $414 billion for 2018 is 57.4%.

Forrester’s new forecast goes one year beyond the forecast it issued last year, which projected online sales in 2017 would reach $370 billion. Forrester’s new forecast puts 2017 sales at $385 billion, a 4% increase.

Forrester analyst Sucharita Mulpuru says increased shopping by consumers on mobile phones and tablets will help propel the growth. Increased spending by digital natives—consumers who grew up using the Internet from their earliest years—will also contribute to the growth as they move into their prime spending years. Consumers between 25 and 33 years old (Gen Y) already spend more online than any other age group, an average of $563 in the last three months, according to Forrester data. (Consumers between 34 and 47 years old (Gen X), by comparison, spent an average of $535 online during the last three months.) Mulpuru says the younger generation is more likely to spend a larger share of their retail dollars on the web. Today, the 69% of U.S. adults that regularly buy online purchase about 16% of their products online.

E-retailers’ aggressive marketing, pricing and customer acquisition tactics will contribute to online retail growth in the coming years, Mulpuru says. That approach has worked, Forrester says, for flash-sale e-retailer zulily Inc., which accounts for an estimated 1% of the total online sales in the product categories it sells, clothes and other items for children and women. Zulily, No. 55 in the newly published Internet Retailer 2014 Top 500 Guide, generated $695.7 million in sales online last year, up 110% from $331.2 million in 2012.

Fast growth does create some challenges, however. Mulpuru says e-retailers must stay focused on site performance and execution, such as making checkout as easy as possible from mobile devices. E-retailers should also work on smoothing fulfillment, especially in the critical Q4 holiday period.

“Retailers need to ensure that they don’t botch that moment of truth with late orders, which seem even more likely to happen as more and more shoppers wait until the last minute to purchase and more retailers cram web orders into an already congested delivery network,” Mulpuru writes.

In its earnings call last week the fast-growing zulily said that the average time it took to ship an order increased in Q1 to 13.2 days from 11.3 days in Q1 2013—an increase of 16.8%. To combat the backlog, it brought in more staff to increase fulfillment capacity. It also announced a plan to invest $45 million to $55 million in the business, with the bulk of that investment going toward automation and technology in the company’s fulfillment centers.

Delivery service UPS also has said it will invest in additional capacity to avoid a repetition of problems that arose in the days before Christmas last year when many consumers did not get their parcels on time.